Applied Materials, Inc. (AMAT) Earnings Call Transcript & Summary

Good afternoon. Why don't we go ahead and get started? It's my pleasure to actually introduce the first lunch keynote at this year's Credit Suisse technology conference. It's my distinct pleasure to introduce Gary Dickerson, President and CEO of Applied Materials. Gary, as I mentioned earlier, wish we were in person, but under the circumstances, virtual is better than nothing, and there's always next year in Scottsdale. But I wanted to first kind of thank you for participating and supporting this year's conference. We've got a fireside chat opportunity for about the next 40 minutes. If anyone in the audience has questions, please feel free to e-mail them to me, and I'll try to work them in to my prepared comments. But Gary, I really wanted to try to break down this session into 3 different areas: first, talk a little bit about kind of industry drivers; secondly, talk a little bit about Applied-specific drivers; but I really want to leave some time to talk about your efforts in ESG, which I know are not only important to you from a social perspective, but something that you actually think can drive incremental gains for Applied Materials.

Absolutely.

Hopefully, that's the way this discussion will go.

Let me kick things off on the industry side. You had a very interesting SEMICON West virtual presentation this year. And I want to stress this was a hypothetical, but you drew out this idea that by 2030, the semi industry could be $1 trillion in value and WFE could be somewhere between $100 billion and $130 billion, which would be significantly larger than it is today. And I would argue relative to the multiple that you and your peers have in the marketplace, something that investors right now aren't willing to underwrite. I'm trying to be curious as kind of giving your thoughts about just the growth in WFE over time. You and I have discussed this in the past. If you look from that 2000 to 2015 period, the industry was more cyclical than growth cyclical. And I think investors are skeptical that the last 5 years have been more of an anomaly driven around conversion to 3D, China emergence on to the world market. Why shouldn't we be concerned that we're at cyclically high levels? Or a better way of putting it, why do you believe there's more secular growth in this industry than what's been demonstrated over the last kind of 15 years?

So John, let me start by thanking you for inviting me to the conference. And absolutely, I'll be there next year in Phoenix. So if you look at this industry overall, I really -- I've been in the industry for, I guess, almost 40 years now, so a very, very long period of time. And if you look from a macro perspective, there's never been a better time than today for the semiconductor industry. Technology is transforming every industry. And we can see that accelerating with COVID-19. E-commerce certainly is growing. And in the future, transportation will be completely different. Health care, education, agriculture, every part of our lives is being transformed. And if you look at the demand aspect, it used to be, if you go back to 2000, we were really driven by PCs, waiting for the operating system upgrades. Then about a decade later, it was really mobile social media emerging. And so you had a more pervasive adoption of devices, everyone with a camera and a computer in their pocket. And then now you see technology transforming everything, every aspect of our lives. And in the future, people forecast 1 trillion connected devices, VLSI and SEMI forecast $1 trillion semiconductor industry that's really at the heart and the infrastructure of this future AI big data wave that we're really, really in the early phase of today. And then if you look at capital intensity, if you assume somewhere between 10% and 13%, you get to at least $100 billion. And so as you mentioned also, there was this time period between 2000 and 2013, where our capital intensity actually declined and so -- and there were reasons for that decline. But if you look at where we're at today, you have much more pervasive drivers of the industry. Capital intensity, we're not weighed down by those factors that impacted the 2000 to 2013 time frame. But people have long memories. And it's hard to really internalize if you don't live this, what's happening from a macro perspective. So again, I've never been more optimistic about our opportunities. I strongly, strongly believe that this infrastructure for the data economy is the best opportunity of our lifetimes.

Well, Gary just sticking on sort of the capital intensity side of the equation. Can you talk a little bit about what you think the move to 300-millimeter did to capital intensity? But more importantly, without 450, how should we think about capital intensity going forward? Because you guys are basing your longer-term projections on a capital intensity that doesn't change all that much, and yet the change to larger wafer sizes have been the mechanism to allow capital intensity to go down, and we don't have that now. So what's the outlook for you?

Yes. So if you look at the change from 200 to 300 millimeter, and this is in this time period where capital intensity, I think, was something around 17% and it dropped to, I believe, somewhere around 9% in that time period where you're making the conversion to -- from 200 to 300 millimeter. So when you go to those larger wafer sizes in that particular transition to 300, you had 2.3x roughly the number of chips per wafer. So that certainly had a big impact from a capital intensity standpoint. The other big thing that was happening during that time frame is that you had really a big movement to the foundry model. So there were less customers, less inefficient customers. So you had those 2 drivers: one was the larger wafer size and the other one was this consolidation in terms of the total number of customers. So you had this overall wafer fab equipment spending pretty much locked at about $35 billion for a very long period of time up until 2017. If I look at the industry going forward from today, you don't have that wafer size transition, there is no 450-millimeter transition on the horizon and if you look at what I've been talking about relative to what will drive this infrastructure for the data economy, and this is really, really, really important, it's not going to be what it was in the past. It's 2D, Moore's Law classic scaling will not enable the performance per watt that we need for the future. So I live this every day. I've got a call with a CEO tonight, I was on the phone with one of the top R&D leaders a few days ago. It's interesting, in this time of COVID-19, I'm actually more connected than ever with all of these different industry leaders. But again, I can see this so clearly, we can see what -- exactly what will happen in 3-nanometer, 2-nanometer, beyond 2-nanometer. And I can tell you, again, from a capital intensity standpoint, you're not going back to those larger wafer sizes. And I think this model, if anything, is a little bit conservative, the 10% to 13% model.

No, that's helpful, Gary. I want to touch a little bit upon China's emergence onto the global stage. And clearly, new sovereign entrants into the semiconductor market is not a new thing. You go back to the '80s, with Japan; late '80s, early '90s, Korea; '90s was Taiwan. But there is a concern out there that every time you get these new sovereign entrants, they're not trying to optimize the economics as opposed to other strategic forces. And so I think there is a concern in the investment community about how rational this spend in China is. Would kind of love to get your perspective on Chinese coming into the market. And whether or not you believe that's inflated WFE? It's something that we're going to have to deal with in years to come.

Well, I think that if you look at China, it's in the $9 billion to $10 billion in terms of the overall wafer fab equipment. And if you parse out where that investment is going, about 1/2 of it is in this trailing logic/foundry type of device, IoT, communication, auto, power, sensors, all of those kinds of devices. And the other 1/2 in memory. But if you look at the spending in that foundry/logic portion, that market is growing. And if you look at those particular segments, certainly this year, industrial and automotive is not where we thought it would be, with COVID-19. But those segments are growing, and the number of devices also are growing, as you see this transformation of all of these different industries. So we look at that spending as reasonably rational relative to the overall opportunity and the growth in the industry. And then you look at the memory spending. I believe you take the memory spending, it's like 1/2 of 1 wafer fab, if you look at the big memory customers. So it's not a large amount relative to the total worldwide demand. I do believe, John, that, that spending for some period of time will not be as efficient. If you look at the number of bits produced per dollar invested, it's going to be inefficient for a fairly long period of time. But I don't see -- it's -- this is not like solar or LED, where you have a very simple process, barriers to entry are extremely low, you can ramp very, very quickly. This is not that type of situation.

Gary, it's hard to talk about China without talking about some of the regulatory concerns that are out there. And I know that these kind of fall in the realm of impossible questions to answer, but I'm going to ask anyhow. I'm wondering if you can talk a little bit about how you see the regulatory sort of landscape playing out in China. Is there anything specific you can discuss to the more recent actions around SMIC? More importantly, with the change in administration coming in January, how should we view kind of the regulatory environment next year and beyond?

I don't think I'm in a position to really speculate what could happen. What I would say, John, is that the electronics ecosystem is tremendously interconnected. So if you look at that entire supply chain and you look at all of the different technologies that go into the infrastructure for the data economy and all of the different applications of semiconductor devices, you have leading technologies coming from all around the world. Sensors coming from certain locations, automotive chips coming from another location, high-speed memory, high-performance logic, again, all of those things come together in terms of the infrastructure that's being built out for these tremendous transformations. So I definitely believe that this ecosystem is tremendously interconnected. And it's in everyone's best interest to have a constructive solution. Now I think also for Applied and this entire ecosystem, we will all perform the best if we have free and fair trade. So we are big advocates for that. It's important for the U.S. industry, absolutely important, but it's also important for the global economy. So John, that's really what we believe relative to the overall situation. I think relative to speculating, it's difficult to speculate on what the next steps will be. But we are hopeful. And I think that it's important for everyone to realize the interconnectedness of this whole ecosystem.

Well, Gary, you and I have talked about this in the past. From a Wall Street perspective, most of the regulatory conversation has been centered around the risk that the U.S. government might ban equipment into China. I would argue that, that's the glass-half-empty scenario. There's also a glass-full scenario in the sense that all this geopolitical tension has kind of highlighted the fact that this stuff called semiconductor fabs is pretty strategically important to nations. And the U.S. has been outsourcing much of that capacity to overseas for decades. Clearly, we've got the CHIPS Act going through Congress. Today, you've got TSMC, who announced a fab in Arizona. I've had conversations with EU officials that are thinking about incentivizing domestic capacity. What's your perspective on sort of this redomiciling of semiconductor production and what it might mean for your business?

So John, as I said before, I really deeply believe that this infrastructure for this ecosystem for the data economy is really incredibly important for every country. And certainly, when you look at -- we'll talk about the ESG part of the discussion in the third part of what you described earlier. But you have to improve orders of magnitude and performance per watt to enable that efficient computing. The performance per watt is really, really important. So I think every country, it's -- relative to the total economic value that's created and the transformation of every part of our life, this next decade is going to be incredibly important for every country. And so certainly, as you described, you see that TSMC moving to the United States. I'm in conversations with those executives on a very frequent basis. And I was certainly very positive and supportive of helping any way I can making that move successful into the United States with their technology. But I definitely see that relative to competitiveness, economic growth, employment growth, going forward, this is a really important area of focus for every economy around the globe. So certainly, we see it in the U.S. I'm hopeful, John, that we will see more that this is really a first step relative to the kind of investment that is important for United States and for every country going forward. Now for Applied Materials, when these moves happen into different geographic regions, it really is an opportunity for us. Even with some of these companies, we're talking about how do we enable talent for them in those new geographic locations. Our service business certainly, when you're across an ocean and many time zones away, that operational capability isn't the same as driving 1 hour or hopping on a train to your other location in 1 hour. So all of those things, we've had discussions with -- I've had discussions with CEOs, R&D leaders, operation leaders that are moving forward with some of the current initiatives, but I do believe there are opportunities going forward for us, and that absolutely will help stimulate more growth for Applied Materials, especially in our service business.

Gary, you've given us some really good insights into how you're thinking about long-term WFE. I wonder if I could just dial into a little bit more in the near term. On your last conference call, you talked about your outlook for calendar year '21 to be similar to calendar year '20. I'm wondering if you could just help us think about how we should be thinking about WFE for next year and the different buckets. Because clearly, I think there's not a lot of controversy around DRAM recovering next year, because we're at cyclical lows. But I think there are some investor concerns that NAND has been a lot stronger this year than people thought, and foundry is actually coming on to a second straight year of strong WFE. So how are those 2 submarkets sustainable into next year?

Absolutely. So we haven't given any specific forecast for '21, but I can give you some color on what we're seeing. So in '20 basically, what we said is that we see the market up in the range of 10% to 15%, really trending toward the high end of that particular range. Foundry certainly was pretty strong this last year at around 55% of the total market. And NAND really was the biggest performer in this -- in 2020, with about 2x the growth rate of the other segments. So this has been a really big NAND year in 2020. If we look at 2021, we have a lot of visibility relative to what we're hearing from customers, where the investments are going. And in foundry/logic, we see 2021 continuing to be strong, similar to 2020. And in memory, we see something very different, with NAND being much stronger and DRAM more flat relative to 2020.

That's helpful. And then, Gary, my last sort of top-down question before moving on to segment 2, which is more bottoms-up Applied-specific. But I'd be curious, we on Wall Street tend to always focus on the bleeding edge technologies in manufacturing. And yet when you look at some of the demand drivers that you described earlier, especially at the edge on IoT, a lot of that is driving demand for more trailing edge and even 200-millimeter capacity. What's your outlook for that business? Could you actually see Applied getting back to building brand-new 200-millimeter tools to support that demand? And will that be additive to WFE in an area that we should be paying attention to, but we're not?

Well, I definitely believe if you think about 1 trillion or 0.5 trillion connected devices, in the specialty markets, the IoT, communication, auto, power, sensors, those markets are some of the fastest-growing markets, and everything is getting smarter, again, across all those industries I talked about earlier. So that business has been growing for us. This year, some segments, the industrial and automotive, certainly with COVID-19 weren't growing at the rate that we thought. That overall business is still growing. We have been building new 200-millimeter tools for a while. If you look at what happened, these markets have been growing, and there was this used-tool market, but a lot of extra capacity or those used tools have dried up. So we've been building tools for this market for a fair period of time. And we also changed our organization structure. We formed this ICAP's group, again, IoT, communication, auto power sensors, about 2 years ago, so focused specifically on the technology transitions in those markets, and we are driving innovation in a number of different areas supporting those customers. If you look at the image sensor market, it's very different than the 3-nanometer foundry in terms of the different technologies. That's just one example. In automotive, we had one customer where they were driving a selection process, and we won 8 of the 9 areas where we were competing. And as you know, that's very sticky once you're qualified into those different customers. So that's been a big shift in focus for us. I personally spent time with a number of CEOs and R&D leaders in this market, by far more, in the last year and 2 years than I've ever done in my time in the equipment side of the business.

So Gary, switching gears to Applied-specific drivers. I wanted to give you the opportunity to address what I think is one of the larger kind of overhangs on your stock. And that is the perception out there that perhaps you're not growing as fast as your peers. And I find it a little bit odd that that's the perception because when you look at the official data on calendar year '19, your percent of WFE actually went up a little bit. We'll have to wait and see what '20 has to bring. But I'm kind of curious if you could spend a little bit of time just talking about your relative market position. Where do you think you're clearly gaining share and perhaps areas where you could do better?

Yes. John, so thanks for the question. If you look at market share overall, since I've been at Applied, we've been up or flat every year, except '18, when there was investment in areas we don't participate. Certainly, EUV was growing at that time, dielectric edge, furnaces, some of those other markets. But other than that, we've been flat or up every single year. '19, as you said, we outperformed. Our semi business is up a little more than 25% this year. So we anticipate that we're going to outperform in 2020. And we like to set up for 2021. So we believe that we're in a good position. And I think the track record is good other than the 1 year over the last maybe 7 or 8 years. Relative to what I see going forward, I deeply believe the future doesn't look like the past. The future is going to be about innovating with a new playbook, the PPAC, power, performance area, cost and we say, t, for time, time-to-market, and that's all about creating, shaping, modifying, analyzing, connecting devices and structures. And that's really the big news for me that the industry is at a point where the opportunities for us have never been better. We're at the foundation of the infrastructure for the data economy. And if you look at the playbook going forward, and again, it's -- I can see this because I live it every day in these discussions with these R&D leaders, but when you think about performance per watt needed, orders of magnitude improvement and performance per watt that are needed, creating these new transistors that are higher, 15% higher drive current, 10x lower leakage current, the wiring in the contacts with a tremendous reduction in resistance, actually, that's one of the biggest bottlenecks for 3-nanometer today is in that part of the process. But that is really the foundation. And I deeply believe that there's going to be tremendous innovation in the combinations of these different technologies. And when you think about the breadth of all of those things I talked about, Applied is the only company that can bring all of that together, especially into a single platform, John. When you look at FinFET or gate-all-around nano sheets, some people call it, going forward, managing those interfaces is incredibly important. If you go to atmosphere, you oxidize that interface. So that's damaging the electrical properties. So we're seeing -- we're working with companies on new ways to build the structures, new materials, new ways to connect the chips together, new ways to shrink all of those things, new architectures, that's what's going to drive the industry forward. If you look at our specific markets, last year, Epi, PVD, CVD, we grew 8 points of share overall. This year, our metal deposition business grew over 40%. Our etch business grew 30%. Our PDC business, which is inspection and measurement, was up, I believe, somewhere around 46%. So again, those are -- I believe, in the areas where we're strong, that is going to enable the power and performance for this new road map going forward, and we have a lot of room to grow and really a great setup for markets that are very big that we have not as high share, like etch and inspection.

Well, Gary, I wonder if you could just help us out here and the audience. How should we think about your relative position by device types? So if we have our own view on DRAM versus NAND versus logic versus foundry, what's the best mix for you? What's the worst mix for you?

Yes, we're pretty much agnostic. It's pretty much -- if you look at where we've been, 2013, we were 20% in foundry/logic; NAND, DRAM, 15% and less. So I think maybe one thing that people believe about Applied is, if it's a foundry/logic year, it's good for Applied. But actually, if you look at where we're at today, we're pretty balanced around 20% in all of those different segments. So certainly -- again, I can see what's going to happen in 3 nanometer. We know what 2 nanometer looks like and beyond 2 nanometer, we're in a great position to enable these new structures, new materials, new ways to connect the chips together. I'm very, very optimistic. In DRAM, you see inflections there, higher-speed DRAM, and they're going to logic-like structures in the periphery. That's epi and PVD and implant and a lot of areas where we have very, very, very high market share. We're also growing #1 in conductor etch in DRAM. So our patterning part of that business is also doing incredibly well. And NAND, again, it's really about scaling with materials innovation. That's really probably the best example of what I've described as a new playbook, where you ran out of gas going with 2D shrinks, from a cost standpoint, and you ran out of electrons in the cell, so you had to go vertical in the innovation. John, you're going to see more innovation like that, that people really don't anticipate, but it's really about materials innovation and all of those different technologies that I talked about.

That's helpful. I want to switch gears to your services business. Great business, kind of running sort of mid- to high 20% of revenue. Help us understand kind of the growth of that business versus kind of your core equipment business because you've clearly laid out a strong growth trajectory for the equipment side. Can services match that and keep up with that? And as you think about that $100 billion WFE market, if I run the math, it means that you could have a recurring revenue business that's approaching sort of $6 billion to $8 billion of annualized revenue over time. Am I thinking about that the right way?

You're absolutely thinking about it the right way, John. So when we look at our installed base business, you have services, parts, 200-millimeter equipment. And then in semi, we actually report the 300-millimeter upgrades. So it's -- all of the companies report these things a little bit differently. But when you look at our total installed base, it's nearly 1/3 of the company overall. And then when I look at really what drives that business, it's growth in the installed base, which grows up at about 5% per year, it's revenue per tool and then another big driver is -- are the long-term service agreements. So just as a reference, when we have a long-term agreement, certainly, it's very sticky. We have over 90% renewal rate. So that shows really customers value what we're doing, but we also generate more revenue per tool. It can be 3x to as much as 10x more in revenue per tool. And if you go back from 2013, we were around 40% of our total service business being the long-term agreements. Now we're up to 60%. And we're also growing longer-term agreements. This year, I believe, we're something like 30% on 3-year contracts versus 1-year contracts. Now we have a very high renewal rate. But again, that gives us really a real predictable growth in that part of our business. And I would say that the opportunity there is really tremendous going forward. When you think about our customers, what they're facing. And as I said, I'm on the phone and video conferences with these people all the time. R&D speed, PPACt speed, how do I get that process window as big as possible, as fast as possible? It's incredibly complex. So how do I do that, with data analytics and sensor technologies and unique metrology that's another area that Applied has that's unique versus our competitors, where we can see if we're working with someone on gate-all-around, with resolution that's 80% higher than anything on the market, you can see residual germanium in the structure. It's very, very important. So combining that together in R&D acceleration, the ramp acceleration, once I get that process window dialed in, how do I duplicate that across my entire fleet of tools? That is a really big problem for customers. It's worth a lot of money if I'm investing many billions of dollars in terms of these factories. And so that's a big one. And then another one is in high-volume manufacturing, maximizing yield, output and cost. And this really gets back to technology, data analytics, sensors, we have thousands of tools that are connected inside the customers' fabs with these data analytics, but we are -- we also have thousands of tools connected outside the fabs. And many people -- we talk about COVID-19 and how we work. And I've told many people, I don't want to go back to normal. I want to go beyond normal. I want to accelerate R&D 10x. I want to change the way we support our customers. I want to have experts instantaneously connected anywhere around the world. And John, again, we have thousands of tools connected today. We have tremendous capabilities. You'll hear more about this in the coming months in terms of what we've been driving. I don't want to go into too much detail today, but I'm super excited that we can actually accelerate growth in our service business.

Gary, switching gears, again, to the flat panel display business. I think one of the reasons why there is this misperception out there that you might not be growing as fast as your peers is because the flat panel business has been in a kind of a digestion mode. I mean, it peaked in calendar year 2018, I think, about $2.5 billion. It troughed in '19 at about $1.5 billion. It's up a little bit this year. We're modeling flat next year. How should we think about -- how do you think about that business? Is it core to the portfolio? Do you see it as being ROI accretive and accretive to kind of your strategic drives?

Yes. So let me say, I'm not emotional about any business. I think for me and also for Dan, we look at this from a very objective standpoint. But relative to display, I think this is a good adjacent market for us. If you look at areas where we're strong, CVD, PVD, we've moved our e-beam technology into that market. And that core business for us, the share is very strong. And actually, it's very profitable in the high 20s relative to the operating percentage for that core business. And that's through all of these different time frames that you've just described. So that core business is strong for us. And again, it is a good adjacent business for us. Relative to the overall market, we have -- we are bouncing along the bottom. As you talked about, in 2020 and 2021. We believe it will be a similar type of a setup relative to the display business. We have been investing in some areas of the market that can expand our TAM. Right now, we serve about 15% of the total display market. And we're focused on some areas that we believe that we can add significant value for the customers and also for Applied. So we have been investing in those areas. If I look at the market overall, what we see in '22 is the market growing again, and there's a switch from LCD percentage around 50-50 today, OLED will grow more going forward. If you look at the mobile handsets, you have about 30% penetration of OLED today. With 5G handsets, it's about 70% penetration. So you're going to see growth in that aspect of the market. We also believe TV sizes will continue to grow. That will drive some growth in the TV part of the market. And we believe OLED will also grow in '22 in the TV side of the market in addition to the handset. So we see that shift more towards OLED as a total portion of the market, we believe the market will be higher in 2022. We're not giving any point estimates right now. But the setup for us is also positive in that OLED is 2x more capital-intensive than LCD. So when you see OLED growing as a portion of the market, not only the market growing up, but the capital intensity going up, that gives us a much better setup for 2022. And long term, our goal is for this business to be in the high 20s relative to overall operating margin performance. Again, our core is there today. And certainly, we're not emotional about any of these investments that we're making. But I do believe this can be a good addition and will be accretive to Applied in the not-too-distant future.

That's helpful. On Kokusai very quickly, I doubt there's any update on timing from what you said on your earnings call a few weeks ago. You've got 5 out of 6 of the jurisdictions approved, still waiting for China. But I was wondering if you can just talk a little bit about the strategic rationale, because one of the concerns I do here with investors is, gee, doesn't this just give AMAT more noncritical process steps and dilutive to growth. I kind of look at it a little bit differently. There's not a lot of overlap between what you do and what Kokusai does, and there's a lot of -- seems to me, operating leverage in the model. So maybe you can spend just a couple of minutes refreshing us on the strategic rationale behind Kokusai?

So John, I don't want to go -- and I will love to do that once we finish this last approval. I will guarantee you that we'll get into a lot more depth relative to this question. But let me just say this. As I mentioned, I'm connected with these different customers, the R&D leaders, on a very regular basis. And this particular batch technology, you can process many wafers at the same time versus a single wafer tool, which is mostly what Applied has, you can process multiple wafers at the same time at higher temperatures. So there are certain kinds of films and certain kinds of processes where that complementary technology is very, very important. So if you think about DRAM going forward or NAND going forward and the way they're building those structures, and certainly, it's also applicable in foundry/logic, I don't see it as a commodity at all. It's very, very important. And when we think about what those future memory devices will look like, these kinds of capabilities, going to the higher temperature, being able to process multiple wafers at the same time, give you film properties that are important as you're building those structures going forward. And then for Applied, it's really the co-optimization, getting back to this creating, shaping, modifying, analyzing, connecting devices and structures. It really gives a much deeper strategic engagement, the broader the portfolio you have with all of our key customers. So I definitely am excited. Certainly, the team is a very, very strong team. I've known this team for a long period of time. And John, I'll be more than happy to share more with you once we complete this transaction.

Looking forward to that. I promised at the beginning that I wanted to save a little bit of time for ESG. And so let's move on to the third kind of segment. I thought you gave a fascinating presentation at SEMICON West this year virtually with some really interesting stats. The ones that stuck out in my mind is that the average 50,000 wafer start per month fab uses enough power to power a city of about 100,000. And the other one was the fact that data center consumption is going from 2% of global electronic consumption today to what could be north of 15% by 2025. The key point that you were trying to make is that these are just not sustainable metrics. And what I really appreciate about the talk is that you're not trying to force a round peg into a square hole, you actually think that solving these problems becomes vital and important to kind of the growth in your own company. And you've got this 3 by 30, I think, initiative. Can you spend a few minutes kind of just talking about this? And importantly, how do you think that this gives you a competitive edge to drive outsized growth?

So I do deeply feel that this is really important. I think our role as leaders is to leave the world a better place. Our vision for Applied is to make possible a better future for everyone, and this is an energizing vision for everybody that's here at Applied. And I laid out this vision of the 1x, 100x, 10,000x. And let me start with the 10,000x because that's the biggest number. And if you look at power, performance, area and cost, where do I need to go with performance per watt so that I'm not generating or consuming a tremendous amount of power as I'm transforming all of these different industries. The economics are compelling. This will happen. The question is, is it going to happen in a sustainable way. People talk about oil powering the industrial revolution, data powering this AI revolution, but I don't want to have the carbon impact of the oil. That wouldn't be responsible for us if we look back on our lives in terms of what we leave for our children and future generations. So I deeply believe this new playbook is really essential. You will not get there with classic Moore's Law. There is 0 chance of that happening. And if you go to, in September, one of our largest Asian customers, they presented their road map for energy-efficient computing, doubling edge energy-efficient computing every 2 years. Beyond 2020, they showed what the drivers are. And those drivers are exactly what I've been communicating, 5 drivers that I've been communicating for the last 3 years: new structures, new architectures, new materials, new ways to connect chips together and EUV enhancements. And again, to me, I was so happy seeing this amplification of the message through the industry. We are at the foundation in enabling this infrastructure that makes an enormous difference in the world. The power performance, the power performance per watt that we need to get to, we're off by orders of magnitude, I have complete confidence we will get there, but Applied is essential to enable that infrastructure going forward. You also talked about 100x, the 3 by 30 goal. And so the drive there is to improve the throughput density of our systems, our energy consumption, the chemical consumption, all of those areas of our systems. We've been driving those initiatives. We're working closely. You saw TSMC and Micron also in this talk that I had in July. So we're working very closely with our customers. So these initiatives, absolutely, John, I feel so deeply about what we leave as leaders in this industry. But when you think about the impact that we can have on 10,000x, power, performance, area, cost, scaling performance per watt in a sustainable way, not leaving behind a negative impact similar to what oil did with the industrial revolution, that is a tremendous goal for all of us to work together to accomplish. And then there's the 100x. That's another one where we're doing the right things, but it also makes our products more compelling. And I would say relative to our employees, this is incredibly energizing, making possible a better future for everyone. We play a big role. And I personally feel incredibly lucky to be a part of a company that has such a big impact on the world.

That's great, Gary. We've come to the end of our keynote presentation, but I really wanted to thank your time -- thank you for your time today. It was a fascinating discussion. I also want to send along all of our wishes that you, your immediate family, and importantly, the extended Applied family stays safe and healthy in what's been a very trying 2020. But thank you very much for your time today.

Well, thank you, John, for inviting me. And I look forward to seeing you next year.

Appreciate it.